Time to Close the Books on My 2017 Double Net Value Portfolio

 | Dec 20, 2017 | 10:00 AM EST
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I am getting ready to close the books on my 2017 Double Net Value Portfolio, which means that I'll also be rolling out the 2018 vintage very soon. Overall it was a good year for this somewhat off the wall screen that I developed several years ago, as a way to find seemingly cheap companies, in a Benjamin Graham-inspired focus on companies trading at a low multiple of net current assets (current assets minus current liabilities).

Qualifiers had to meet some fairly stringent criteria (below), which kept the population to just 20 names last year, and at this writing, it appears as though there will be a similar number for 2018.

  • Trades at between 1 and 2 times net current asset value (current assets less total liabilities)
  • Minimum market cap $150 million
  • No development stage pharmaceuticals/biotechs

Since the Dec. 30, 2016 inception, the portfolio is up 26%, versus 14.4% for the Russell 2000 Index, and 12.2% for the Russell Microcap Index. Long ago, I deemed those indexes as the most appropriate benchmarks for this portfolio, given the sizes of the typical names. The S&P 500, which is not an appropriate benchmark for this portfolio of misfits, is up 22% year to date for what it's worth.

All but five names in the portfolio are in positive territory year to date, with the oil and gas equipment name Tesco (TESO) the worst performer, down 55%. Geospace Technologies (GEOS) , which makes seismic instruments used in the oil and gas industry, is the second worst performer, down 36%.

Electro Scientific Industries (ESIO) , a name that had languished for years, was by far the biggest winner, up 267%. The forgotten name really turned the corner this summer, putting up some monster earnings surprises in both the first and second quarters. Since early July, shares are up 170%.

The other surprise has been faddish footwear name Crocs  (CROX) , up nearly 90%. This former $35 stock started the year in the $7 range, but put up well better than expected second quarter numbers, and also had a decent third quarter, and investors started to return.

Little-known semiconductor name AXT (AXTI) also killed, and is up 85%. Kulicke & Soffa (KLIC) has also had a solid year, up 55%.

The biggest disappointment has been Fibit (FIT) , which is down about 17%. Despite a solid balance sheet, and a decent new product offering, the Ionic smartwatch, the markets remain skeptical.

I've always seen double-net land as a prime hunting ground for acquisitions; this year, just one name in the portfolio, boating retailer West Marine (WEST) , was taken out, and was up 23.5%. Another double-net, RetailMeNot was acquired in April, but was not included in the portfolio, as it did not qualify at the time of inception.

Here is how the rest of the portfolio fared:

  • Clarus (CLAR) (+44%)
  • Hurco (HURC) (+29%)
  • Adams Resources & Energy  (AE) (+18%)
  • Tech Data (TECD) (+14%)
  • AVX Corp.  (AVX) (+13%)
  • FreightCar America (RAIL) (+12%)
  • Movado Group  (MOV) (+12%)
  • Gencor Industries  (GENC) (+2%)
  • CSS Industries (CSS) (+2%)
  • Benchmark Electronics  (BHE) (-4%)
  • Univeral Corp.  (UVV) (-12%)
  • Avnet (AVT) (-17%)

The early read on the 2018 Double Net Value Portfolio is that it will include some holdovers from last year.

Stay tuned.

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